The Financial Times newsletter, Moral Money, has been on a mission these past weeks, running a list of Saints and Sinners relative to the Environmental, Social and Governance actions of companies. As the title might suggest, it is both uplifting and depressing at the same time. As a football fan I note that one club (mine) started well by paying its ground and match day staff through the crisis irrespective of the suspension of games and releasing them to help with crowd and car park management at local supermarkets, only to lose the goodwill created two weeks later by putting a number of permanent staff on furlough in order to qualify for taxpayer money to support payroll costs. It seems that a “saintly” decision can be followed by a “sinful” one; presumably the other way round also. Non-football fans can cast an admiring glance at the Italian energy group, ENEL, offering extended Covid19 specific health insurance cover for its 68,000 employees worldwide. They might also sneer at the US Environmental Protection Agency not enforcing various air and water pollution “requirements for the management of hazardous waste, or requirements to ensure and provide safe drinking water”. The pharmaceutical company, Gilead Sciences, tried to corner the market for an experimental drug seen as a potential coronavirus treatment, called Remdesivir. After negative press treatment, they desisted, but which action will be associated with the company in future, I ask.

But there are Saints gaining approval with textile and luxury brands converting production lines to produce protective clothing or alcohol-based cleansing gels. Society is taking note; customers are taking note.

It’s hard to comprehend that it is only three weeks since WHO declared a pandemic and board directors finally faced a fight for survival and adjustment in the face of Lockdowns and Social Distancing demands. This was the point when companies either reaped the benefits of contingency plans and crisis management protocols, or found themselves in the deep end of a pool; in a sink or swim scenario. For those who manage to get back to the edge of the pool and somehow pull themselves out, there is a lesson that needs to be noted and not forgotten. Learning to swim, even if you don’t like getting wet, is a prudent contingency policy: Preparing and practicing for crisis should be a standard measure for boardroom agendas everywhere.

That is a subject for later. Right now, we are still learning on the job and working to stabilise our organisations, both financially and operationally. At a time when we can no longer take supply and distribution lines for granted, when clients either change their priorities or can no longer easily access your product or services, or when government guidelines and regulations are preventing employees from exercising their jobs in the manner expected, there are a number of key questions board members need to consider.

  1. What is our current situation?
  2. What immediate internal measures can we take to stabilize our situation?
  3. How is the new reality impacting our risk profile and challenges?
  4. Can we collaborate with external stakeholders to ride the storm?
  5. How can we help the Executive; do we step in or step back?
  6. To whom do we owe the first order of care and loyalty?
  7. Is the business sustainable in the short to medium term?
  8. Is there a “baby” in the bathwater? What lessons are we learning?

Taking stock 

What is our current situation?

For companies in EU countries like Luxembourg, the initial shock is over, and urgency has overcome any denial and anger phase in the Kübler-Ross Change curve. Depression has no role in the boardroom, hence, companies are now “negotiating” with the new reality facing them. The task is to survive this crisis and to prepare for the post-Covid19 future; uncertain as we are as to when that will be, or what it will actually look like. 

For companies operating in jurisdictions where governments have been less pro-active or where institutional trust is lacking, boards would be well advised to consider all options and damage control strategies being demonstrated elsewhere and to react pro-actively on their own. Also in regions seemingly sheltered from the pandemic, the global aspects of Covid19 will impact stakeholders and markets abroad; planning for an uncertain future is on the agenda.

The first practical impacts on businesses are likely to be known already, mostly driven by social distancing measures. For office workers, the imposition of remote working has been a dramatic change for both companies and workers alike. Although the number of employees granted permission to work one or two days a week from home has gradually been increasing, companies were far from well prepared to deal with this dramatic change of circumstance. The sudden demands placed on IT staff and infrastructure, the increased cyber threat, not to mention the sudden loss of traditional command and control practices that assure work effort stays on point and on time, are issues that the executive and the board are still struggling to get to grips with. Traditional managers and workers are simply not used to working as separately and autonomously as they are required to do now; working from a less than perfectly equipped home, perhaps surrounded by spouses also trying to adjust, children and pets. Additionally, individuals who thrive on social interaction with colleagues, might find themselves isolated and anxious. Dealing with such questions, providing support and advice is still part of “getting the cow out of the ditch” initial response to the crisis. 

Equally, in businesses where workers are still required to gather and mingle, anxiety levels will be understandably high. Employees need to observe pro-activeness on the part of management to convince them that the firm cares for, and will protect, them. Some measures will slow productivity, but they will be necessary – both to instill confidence in workers concerned about the health of themselves and their families, and to prevent a Covid19 outbreak decimating the workforce. 

Stabilising the current reality is still the first order of the day.

Save what can be saved 

What immediate internal measures can we take?

Irrespective of the existence (or not) of crisis management protocols, or contingency plans left over from previous pandemics, each crisis is unique. Neither board members nor the executive will be fully prepared for the known and unknown risks being encountered in any one scenario. Certainly, staff will find the changes being imposed both bewildering and worrying. It is therefore going to be a major challenge to provide employees with the support, technical and emotional, that they need. Staff being asked to work remotely will need advice and equipment, and also to sense that their managers and employers care about them and will act considerately to help them adjust to the changed environment they have been forced into. This crisis is imposing huge pressures on business and industry, but also on individuals. Communication and flexibility must be emphasized – be it about working hours, job content and changing priorities, even remuneration arrangements if necessary.

In a crisis, it is natural to focus on what you can control yourself – it has been amply demonstrated in the shopping frenzy and hoarding we witnessed at the onset of “lockdown” measures. In contrast, the board must ensure that their view also remains firmly fixed on the horizon. How are clients reacting to the situation? Is their appetite for your product changing and can you accommodate it? Can you offer purchasing and delivery options that are more appropriate to the situation? Are there new needs arising that can be usefully satisfied by your firm? There are perfume manufacturers and distilleries now producing alcohol-based cleaning gel, fashion companies producing medical masks, engineering companies producing hospital respirators. 

Don’t forget to shut the gate 

What is our new risk profile and challenges?

In any change management situation, there is a good deal of time and resource dedicated to planning, risk assessment, monitoring, and reporting. In a crisis situation, such orderliness is easily forgotten or under-resourced. In a world rapidly moving to remote working arrangements, in large companies where the practice has been experimental only to date, or smaller companies where there is no experience, the risk of cyber threat is an obvious concern. In businesses where people still gather, such as manufacturing, transport and essential retail stores, hygiene and safety measures must be carefully and diligently considered and acted upon. Risk management is not a static exercise; it is a moving target. The board has a duty to ensure all necessary due diligence is completed and risks both internal and external to the firm monitored to fullest extent possible.  

If you need help, ask 

Can we find external partners to collaborate with?

A major disclaimer of this article is that, even within the EU, different governments are adopting different measures in their jurisdictions to help companies prepare for, and overcome the financial burden of pandemic containment measures. Part of discovering what “stabilisation” means for the individual firm depends on understanding and responsibly making full use of the help being offered at local level. In some jurisdictions, the State is granting “holidays” on social insurance contributions, imposing a temporary waiver on the payment of loan principal and interest, offering cash compensation to employers for a large part of their employees who are prevented from working by government action, etc. Learning of such measures and applying for them is necessary and essential. The board must ensure they are fully informed, and be aware of potential outcomes and impact, including making best use of such funds to serve their intended purpose. This is not the time to demand taxpayer money and still pay dividends. 

Of Back Seat Drivers 

Helping the Executive; do we step in or step back?

In a time of crisis, board members may well have to work hand in glove with the executive in some aspects of daily management, but as soon as the executive can take control of daily management, the board should step back into their consultation and support mode and get out of the way. The focus must now be back on the principal role afforded the board – ensuring the long-term success of the firm by defining its purpose and strategic direction, and matching this with available resources.

Stakeholder or shareholder – where do loyalties belong?

To whom do we owe the first order of care and loyalty?

Certain directors still remain confused as to their role and duties. To whom do they owe their loyalty? How do they choose between shareholders, creditors, the company, or even themselves perhaps? Surprisingly for some, the answer is normally quite well defined. The first point of reference as to the duties imposed on directors is the law of the land. In most jurisdictions, this requires directors to work to the best interests of the company first, and financial and non-financial stakeholders second. In a time where corporate survival is a topic, there is little to discuss. Most laws require the company to ensure that the interests of creditors is the first responsibility. Whilst the legal definition of creditors, and the order of priority amongst them may vary slightly, they will include employees, suppliers, the tax authorities, banks, and other lenders – not shareholders. Indeed, so-called “over-trading”, engaging in commitments over and above the ability of the firm to pay debts incurred, is a criminal offence in most countries.

Quid shareholders?

Once the financial constraints and capacity of the firm is established and under control, it is time to turn to non-creditor stakeholders in the context of the long-term success of the enterprise. Depending on shareholder ownership concentration, shareholders need to be advised and comforted or consulted, and minority interests amongst them protected. Where a dominant shareholder wants to instruct the board on particular courses of action, the board must adhere to its Articles of Association as to the establishment of Extraordinary General Meetings and local laws, amended as they may, or may not be, by temporary crisis regulation.

Stakeholder relationships

Once the hard priorities dictated by law have been satisfied, the board must turn its mind to creating the best possible conditions for an agile and speedy return to business as soon as the situation allows. This requires maintaining bonds and partnerships with the key contributors you will rely on to get going again. Amongst your employees, there will be key persons you wish to reach out to and consolidate as available for the future, but engaging with the entire workforce is a necessity if experience is to be retained and fresh hiring and training costs avoided. Discussing and / or negotiating with unions or employee representatives will be a key feature of maintaining the trust and loyalty of the workforce.

In equal manner, the board must ensure that high-level contacts are maintained with key suppliers and distributors, in part to evaluate the viability of continuing existing partnerships in future, but also to see if the current challenges may be eased through joint action, or the future made more secure. 

On the precipice

Is the business sustainable in the short to medium term?

The more information the board receives, the clearer the picture will become. For some, they will be glad of the prudent financial policies adhered to in the past. They will have breathing room and some time to make adjustments. Others will realize that without external help from shareholders or government, the only path available is winding down operations – preferably without bankruptcy. 

Many will find themselves on the precipice, able to continue with care and having to watch every penny spent. This is not the time for stoicism; it is a time to be humble, transparent and communicative. If not an act of God, a pandemic is certainly a case of “force majeure” and there are no fixed rules to be followed. As a board, it has a duty to care for creditors – equally, it is unlikely that creditors will see it in their interest to push debtors over the cliff if there is room on their side for maneuver. Boards need to discuss their situation with their creditors, plan with suppliers and distributors, lobby government for assistance, and check with insurance companies for support and possibly relief.

It may be a time when gamesmanship and bluff may appear tempting to persuade others to compromise or invest in the enterprise – but the only correct and ethical path is to practice candor, to be transparent and honest. The duty of a director is to work for the long-term success of the company, but not by any means.

Silver linings

Is there a “baby” in the bathwater? What lessons are we learning?

Doom and gloom are not for the boardroom – realism and hope are. Once the board has come to grips with the reality of today, they should be focusing on the opportunities that will come with the new dawn. Once the pandemic crisis is under control, there will have been massive change – both to existing manufacturing and service capacity, but also to consumer behaviours, choices and needs. 

Indeed, by focusing on your core abilities, it may be possible to find new avenues to invest in for the future, just as old paths close. It is the old adage that a tool maker does not sell hammers to enable nails to pierce a wall, he provides a solution to the problem of how to hang a picture on the wall. We have unique skills and approaches to solving problems – we need to look for other problems to solve than the ones we have contented ourselves with solving in the past.

A few actors, such as video conferencing providers, disinfectant gel producers, and medical equipment providers may already see a growing market establishing itself for the future. Some have sought to profit from this sudden shift in the demand curve by charging higher prices and/or cornering the market. Actions at a time of crisis, and in a world where reputations can be destroyed in short shrift via social media, will be highly visible. Those who are seen as profiteers risk being excluded from the long-term plans of their “victims”. It is therefore a better option, by far, to maintain a socially responsible perspective and to help clients and community to the best of their ability. Brand reputation and client loyalty are outcomes of trust and empathy; investing in such things at this time will reap material benefits over time.

The E & S of ESG

At a time of crisis, when survival is the first concern, Governance is the guardrail to keep the company on track. As discussed above, some of the governance initiatives already concern themselves with the social impact your actions have on stakeholders like employees, suppliers, distributors and customers. Secondary, indirect stakeholders like local communities, the medical services that care for your employees, even your competitors and the media; all will have an influence on your ability to succeed in future and are worthy of attention and help where it is possible. In a world where consumers are increasingly demanding authenticity from their suppliers, this is not only the right thing to do, but it could also be a contributor to long-term reputation and success.

In some respects, the environment is a beneficiary of the Covid19 crisis. The stars shine more brightly in the sky, carbon emissions have been greatly reduced, and factory closures have led to less pollution. Some of these improvements are the consequence of new working practices that have been forced on companies previously comfortable in the nest of inertia; boards must learn from all of these experiences. No doubt many will be abandoned, but others may be found to be interesting enough to integrate and refine. The hope is that businesses can emerge the other side of this crisis to pursue ESG with more determination and conviction than before.

What next

We do not know how long this crisis will last. The US President has given up on his hope that things may return to normal by Easter, in line with the less optimistic of us. My government is signaling the situation may continue at least another 6 weeks. For all of us, board members or not, the duration of this crisis is a known unknown for which we need to plan. We need to consider how to best return to normal production, with a best case of a few weeks and a worst case horizon of (for example) 12 months of on and off disruption of our activity. We must also decide upon a reasonable case assumption of something in-between. The only certainty is that, in the light of each company’s individual ability, we need to plan for the worst and prepare for the best. Mothballing capacity in such a way that re-activation can be achieved in an orderly and speedy fashion, preparing a buffering strategy in case of an “on-off” return to normality, and consolidating lessons learnt now for re-use in the event of a “second wave” of the virus are all required. 

Most important of all, once viable vaccines or eradication have hopefully relegated this crisis to history, we must ensure that we learn our lessons and do not become complacent – as we have in the past.


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